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TREE.COM INC (TREE)

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Tree.com Inc : Tree.com Reports First Quarter 2012 Financial Results

05/01/2012 | 09:30am US/Eastern
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CHARLOTTE, N.C., May 1, 2012 /PRNewswire/ -- Tree.com, Inc. (NASDAQ: TREE) today announced for the quarter ended March 31, 2012, consolidated revenue of $64.1 million, net income of $13.1 million, or $1.15 per share, and adjusted EBITDA of $17.3 million. As a result of the pending sale of substantially all of the operating assets of Tree.com's wholly-owned Home Loan Center subsidiary, financial results of the LendingTree Loans business are presented as discontinued operations for all periods reported. Net income and adjusted EBITDA figures include both continuing and discontinued operations.

(Logo: http://photos.prnewswire.com/prnh/20110518/MM04466LOGO )

Doug Lebda, Chairman and CEO of Tree.com stated, "I am extremely pleased with our results. Our Q1 results represent the Company's strongest Adjusted EBITDA performance since our spin-off from IAC in August 2008. Our core performance marketing business, comprising the continuing operations portion of our financials, continued to grow profitably. We stepped on the gas in Q1 with more marketing spend and grew our mortgage volume and revenue significantly. Variable market margin was strong at 31% on the GAAP measure and 47% on the non-GAAP adjusted Exchanges measure, though down from Q4 2011 due to the additional marketing spend. We have now delivered four consecutive quarters of Adjusted Exchanges EBITDA growth, which we believe bodes well for our imminent return to being a pure-play performance marketer leveraging a unique, iconic brand. Meantime, LendingTree Loans, captured under discontinued operations in our financial statements, generated significant cash flow which accrues to our benefit as we work towards the closing of the transaction with Discover."

"Based on our strong performance in Q1, we are reaffirming our full-year 2012 guidance of net income from continuing operations of $3-$4 million and Adjusted Exchanges EBITDA of $8-12 million. We are increasing our estimate of unrestricted cash post-closing of the Home Loan Center asset sale and attendant wind-down of remaining assets and liabilities to at least $60 million, considering the additional profits and cash flows generated in Q1," said Tree.com SVP of Financial Planning & Analysis, Tamara Kotronis.

Non-GAAP Adjusted Exchanges Results

Because Tree.com's accounting policies do not recognize revenue for leads generated by the Exchanges business that are provided to LendingTree Loans, the Company is providing metrics designed to give investors a view into what the Company's results might have been if it did not operate LendingTree Loans during the corresponding time periods discussed in this release. We will continue to report these metrics for future periods pending completion of the sale of Home Loan Center assets.

               Tree.com Exchanges Metrics (1)
               -----------------------------
                                         $s in millions
                                         --------------

                                                                                                                                                                                                                  Q/Q                                                                                                                                  Y/Y
                                                                                                                                                                                                                                                                                                                                                       ---
                                                                  Q1 2012                                            Q4 2011                                         % Change                                                            Q1 2011                            % Change
                                                                  -------                                            -------                                         --------                                                            -------                            --------
                                                                   GAAP                       Adjusted                                    GAAP                       Adjusted                                   GAAP                     Adjusted                                                GAAP                       Adjusted                                   GAAP           Adjusted
                                                                   ----                       --------                                    ----                       --------                                   ----                     --------                                                ----                       --------                                   ----           --------
    Revenue
    -------
    Mortgage (2)                                                             $9.0                           $19.9                                   $6.8                           $14.1                                  33%                            41%                                              $10.0                           $20.0                                (10%)            (1%)
    -----------
    Non-Mortgage                                                             $4.2                            $4.2                                   $3.9                            $3.9                                   8%                             8%                                               $3.9                            $3.9                                   7%              7%
    ------------                                                             ----                            ----                                   ----                            ----                                                                                                                   ----                            ----
    Total Exchanges revenue                                                 $13.2                           $24.1                                  $10.7                           $18.0                                  24%                            34%                                              $13.9                           $23.9                                 (5%)              1%
    -----------------------
    Non Mortgage %                                                            32%                             17%                                    36%                             22%                                                                                                                    28%                             16%
    -------------

    Selling and marketing expense
    -----------------------------
     Exchanges marketing expense (3)                                         $9.2                           $12.8                                   $6.2                            $8.5                                  47%                            51%                                              $14.6                           $20.0                                (37%)           (36%)
     ------------------------------
     Other Marketing                                                         $1.5                            $1.5                                   $1.2                            $1.2                                  26%                            26%                                               $0.9                            $0.9                                  59%             59%
     ---------------                                                         ----                            ----                                   ----                            ----                                                                                                                   ----                            ----
     Selling and marketing expense                                          $10.7                           $14.3                                   $7.4                            $9.7                                  44%                            48%                                              $15.5                           $20.9                                (31%)           (32%)
     -----------------------------

    Variable marketing margin  (4)                                           $4.0                           $11.3                                   $4.5                            $9.5                                 (9%)                            18%                                              $(0.7)                           $3.9                         NM                      188%
    -----------------------------
    Variable marketing margin % of
     revenue                                                                   31%                             47%                                    42%                             53%                                                                                                                    -5%                             16%
    ------------------------------

    Net Income from Continuing
     Operations                                                             $(3.3)                            N/A                                  $(5.1)                            N/A                                (36%)                                                                            $(16.1)                            N/A                                  80%
    --------------------------

    Adjusted Exchanges EBITDA (5)                                           $(2.5)                           $4.3                                  $(1.4)                           $3.3                                (78%)                            33%                                              $(8.4)                          $(4.2)                                 70%     NM
    ----------------------------
    Adjusted EBITDA % of revenue                                              -19%                             18%                                   -13%                             18%                                                                                                                   -60%                            -18%
    ----------------------------


    (1)  Adjusted Exchanges mortgage revenue, total adjusted Exchanges revenue, adjusted Exchanges marketing expense, variable marketing margin, variable marketing margin % of revenue, adjusted Exchanges EBITDA, and adjusted EBITDA % of revenue are non-GAAP measures.  Please see "Tree.com's Reconciliation of Non-GAAP Measures to GAAP" and Tree.com's Principles of
     Financial Reporting" below for more information on these non-GAAP measures.
    -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

    (2)  Adjusted Exchanges mortgage revenue is defined as revenue from the Exchanges mortgage vertical plus modeled revenue for leads provided to LendingTree Loans assuming sale prices for such leads equalled sale prices of leads of similar quality sold to network lenders.  Accordingly, this measure also assumes lender demand on the network would have been sufficient to
     absorb the additional lead volume without affecting the prices of the leads actually sold.  Please see  "Tree.com's Principles of Financial Reporting" for further explanation of this metric.
    ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

    (3)  Adjusted Exchanges marketing expense is defined as the portion of selling and marketing expense attributable to the current Exchanges business for variable costs paid for advertising, direct marketing and related expenses, plus selling and marketing expense allocated to LendingTree Loans and recorded in discontinued operations.  This metric excludes overhead,
     fixed costs, and personnel-related expenses.
    ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

    (4)  Variable marketing margin is defined as total Exchanges revenue minus Exchanges marketing expense.
    -------------------------------------------------------------------------------------------------------

    (5)  Adjusted Exchanges EBITDA is defined as Adjusted EBITDA from continuing operations, plus modeled revenue for leads provided to LendingTree Loans, minus Exchanges selling and marketing expense allocated to LendingTree Loans and recorded in discontinued operations.
    ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

Other Tree.com Summary Financial Results

                                                                                               Tree.com Summary Financial Results
                                                                                               ----------------------------------
                                                                                                                                                                                   $s in millions (except per share amounts)
                                                                                                                                                                                    ----------------------------------------

                                                                                                                                 Q/Q                                                                          Y/Y
                                                  Q1 2012                              Q4 2011                               % Change                               Q1 2011                               % Change
                                                  -------                              -------                               --------                               -------                               --------
    Revenue
    -------
    From Continuing Ops                                    $13.2                                $10.7                                      24%                               $13.9                                     (5%)
    -------------------
    From Discontinued Ops                                  $50.9                                $36.0                                      41%                               $21.3                                     140%
    ---------------------                                  -----                                -----                                                                        -----
    Total Revenue                                          $64.1                                $46.7                                      37%                               $35.2                                      82%
    -------------

    Adjusted EBITDA *
    ----------------
    From Continuing Ops                                    $(2.5)                               $(1.4)                                   (78%)                               $(8.4)                                     70%
    -------------------
    From Discontinued Ops                                  $19.8                                 $6.4                                     210%                               $(7.5)                                     NM
    ---------------------                                  -----                                 ----                                                                        -----
    Total Adjusted EBITDA                                  $17.3                                 $5.0                                     247%                              $(15.9)                                     NM
    ---------------------

    EBITDA *
    -------
    From Continuing Ops                                    $(3.9)                               $(3.2)                                   (24%)                              $(14.4)                                     73%
    -------------------
    From Discontinued Ops                                  $19.6                                 $6.3                                     212%                              $(22.8)                                     NM
    ---------------------                                  -----                                 ----                                                                       ------
    Total EBITDA                                           $15.7                                 $3.1                                     407%                              $(37.2)                                     NM
    ------------

    Net Income/(Loss)
    -----------------
    Net Loss from
     Continuing Ops                                        $(3.3)                               $(5.1)                                     36%                              $(16.1)                                     80%
    ---------------
    Net Income/(Loss)
     from Discontinued
     Ops                                                   $16.4                                 $6.3                                     160%                              $(23.4)                                     NM
    ------------------                                     -----                                 ----                                                                       ------
    Net Income/(Loss)                                      $13.1                                 $1.2                                    1008%                              $(39.5)                                     NM
    -----------------

    Net Income/(Loss)
     Per Share                                             $1.17                                $0.11                                     995%                              $(3.63)                                     NM
    -----------------
    Diluted Net Income/
     (Loss) Per Share                                      $1.15                                $0.11                                     972%                              $(3.63)                                     NM
    -------------------

    From Continuing Operations:
    ---------------------------
    Net Loss Per Share                                    $(0.29)                              $(0.46)                                     37%                              $(1.48)                                     80%
    ------------------
    Diluted Net Loss Per
     Share                                                $(0.29)                              $(0.46)                                     38%                              $(1.48)                                     81%
    --------------------

    NM = Not Meaningful
    -------------------
    * EBITDA and Adjusted EBITDA are Non-GAAP measures.  Please see "Tree.com's Reconciliation of Non-GAAP Measures to GAAP" and "Tree.com's Principles of Financial Reporting" below for
     more information on Adjusted EBITDA
    -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

First Quarter 2012 Highlights

Continuing Operations

    --  First quarter revenue was $13.2 million, up $2.5 million, or 24%, from
        the fourth quarter 2011, and down $0.7 million, or 5%, from first
        quarter 2011. The increase quarter-over-quarter was driven largely by
        higher mortgage revenue, as we were able to scale our marketing efforts
        effectively to drive increased lead volume.
    --  Net loss from continuing operations was $3.3 million in the first
        quarter 2012, a $1.8 million improvement from the fourth quarter 2011
        and a $12.8 million improvement from the first quarter 2011.  The first
        quarter of 2011 included a non-recurring $4.7 million legal settlement
        charge.
    --  Adjusted EBITDA in the first quarter was a loss of $2.5 million, a $1.1
        million decline from the fourth quarter 2011, but a $5.9 million
        improvement compared to first quarter 2011.  The quarter-over-quarter
        decline was the result of an increase in marketing costs, as new
        marketing initiatives were ramped up.  The year-over-year improvement
        was driven primarily by $10.7 million lower operating expense, which
        included $4.9 million lower selling and marketing expense.
    --  Total Adjusted Exchanges revenue was up 34% in the first quarter
        compared to the fourth quarter 2011, primarily attributable to higher
        mortgage lead revenue generated as our marketing efforts scaled
        effectively.
    --  Adjusted Exchanges variable marketing margin decreased to 47% in the
        first quarter, from 53% in the fourth quarter, reflecting higher
        adjusted Exchanges variable marketing expense as we expanded our
        marketing initiatives in newer channels and partnerships that we believe
        hold significant potential.

Discontinued Operations

    --  Net income from discontinued operations was $16.4 million in the first
        quarter 2012, a significant increase as compared with $6.3 million net
        income in the fourth quarter 2011 and a net loss of $23.4 million in the
        first quarter 2011.  In both cases, the improvement was driven by
        increased loan originations at LendingTree Loans, supported by a
        favorable interest rate environment.
    --  Adjusted EBITDA from discontinued operations in the first quarter was
        $19.8 million, up substantially from $6.4 million in the fourth quarter
        2011 and a loss of $7.5 million in the first quarter 2011.  The increase
        from the prior quarter was driven by increased loan originations at
        LendingTree Loans.  Year-over-year, Adjusted EBITDA from discontinued
        operations was driven by both increased loan originations as well as the
        absence of integration expenses from Home Loan Center's acquisition of
        SurePoint Lending, which was completed in March 2011.
    --  As of March 31, 2012, LendingTree Loans had three warehouse lines of
        credit totaling $325.0 million of borrowing capacity, of which $225.0
        million is committed and $100.0 million is uncommitted.
    --  Loans held for sale and warehouse lines of credit balances as of March
        31, 2012 were $157.9 million and $142.2 million, respectively.

Liquidity and Capital Resources
As of March 31, 2012, Tree.com had $59.0 million in unrestricted cash and cash equivalents, compared to $45.5 million as of December 31, 2011. During the first quarter, Tree.com did not purchase any shares under its previously announced $10 million share repurchase program. The program began in February 2010 and has approximately $4.3 million of share repurchase authorization remaining.

Sale of Home Loan Center Assets
Tree.com continues to anticipate the closing of the sale of substantially all of the operating assets of Home Loan Center to occur by mid-year 2012.

Conference Call
Tree.com will audio cast its conference call with investors and analysts discussing first quarter financial results and certain other matters described herein today at 11:00 a.m. Eastern Time (ET). The live audio cast is open to the public at http://investor-relations.tree.com/.

Conference call
Dial in #: 877-545-1402
719-325-4774 outside the United States/Canada

To listen to a replay of the call
Toll free #: 888-203-1112
719-457-0820 from outside the United States/Canada
Replay Passcode: 5193412
Replay will be available beginning at 12:00 p.m. Eastern Time on Tuesday, May 1 until 11:59 p.m. on Monday, May 21, 2012.

QUARTERLY FINANCIALS -

               TREE.COM, INC. AND SUBSIDIARIES
            CONSOLIDATED STATEMENTS OF OPERATIONS
                         (Unaudited)

                                                    Three Months
                                                  Ended March 31,
                                                  ---------------
                                                   2012        2011
                                                   ----        ----
                                                   (In thousands,
                                                       except
                                              per share amounts)

    Revenue                                     $13,235     $13,919
    Costs and expenses (exclusive of
     depreciation shown separately below)
    Cost of revenue                                 796       1,206
    Selling and marketing expense                10,652      15,529
    General and administrative expense            4,803       5,472
    Product development                             774       1,246
    Litigation settlements and contingencies        222       4,749
    Restructuring expense                           (64)         94
    Amortization of intangibles                     107         307
    Depreciation                                  1,224       1,059
                                                  -----       -----
    Total costs and expenses                     18,514      29,662
                                                 ------      ------
    Operating loss                               (5,279)    (15,743)
    Other expense
    Interest expense                               (121)        (79)
                                                   ----         ---
    Total other expense, net                       (121)        (79)
                                                   ----         ---
    Loss before income taxes                     (5,400)    (15,822)
    Income tax benefit (provision)                2,131        (265)
                                                  -----        ----
    Net loss from continuing operations          (3,269)    (16,087)
    Income (loss) from operations of
     discontinued operations, net of tax         16,364     (23,408)
                                                 ------     -------
    Net income (loss) attributable to common
     shareholders                               $13,095    $(39,495)
                                                =======    ========

    Weighted average common shares
     outstanding                                 11,173      10,882
                                                 ======      ======
    Weighted average diluted shares
     outstanding                                 11,414      10,882
                                                 ======      ======
    Net loss per share from continuing
     operations
    Basic                                        $(0.29)     $(1.48)
                                                 ======      ======
    Diluted                                      $(0.29)     $(1.48)
                                                 ======      ======
    Net income (loss) per share from
     discontinued operations
    Basic                                         $1.46      $(2.15)
                                                  =====      ======
    Diluted                                       $1.43      $(2.15)
                                                  =====      ======
    Net income (loss) per share attributable
     to common shareholders
    Basic                                         $1.17      $(3.63)
                                                  =====      ======
    Diluted                                       $1.15      $(3.63)
                                                  =====      ======

                         TREE.COM, INC. AND SUBSIDIARIES
                           CONSOLIDATED BALANCE SHEETS
                                March 31,                December 31,
                                                2012                      2011
                                                ----                      ----
                               (unaudited)
                          (In thousands, except
                      par value and share amounts)
    ASSETS:
    Cash and
     cash
     equivalents                             $58,953                   $45,541
    Restricted
     cash and
     cash
     equivalents                              14,852                    12,451
    Accounts
     receivable,
     net of
     allowance
     of $87 and
     $86,
     respectively                              5,645                     5,474
    Prepaid and
     other
     current
     assets                                    1,204                     1,060
    Current
     assets of
     discontinued
     operations                              175,620                   232,425
                                             -------                   -------
    Total
     current
     assets                                  256,274                   296,951
    Property
     and
     equipment,
     net                                       7,696                     8,375
    Goodwill                                   3,632                     3,632
    Intangible
     assets,
     net                                      11,082                    11,189
    Other non-
     current
     assets                                      231                       246
    Non-
     current
     assets of
     discontinued
     operations                               11,011                    10,947
                                              ------                    ------
    Total
     assets                                 $289,926                  $331,340
                                            ========                  ========
    LIABILITIES:
    Accounts
     payable,
     trade                                    $6,758                    $9,072
    Deferred
     revenue                                     188                       176
    Deferred
     income
     taxes                                     4,335                     4,335
    Accrued
     expenses
     and other
     current
     liabilities                              16,255                    16,712
    Current
     liabilities
     of
     discontinued
     operations                              197,901                   250,030
                                             -------                   -------
    Total
     current
     liabilities                             225,437                   280,325
    Income
     taxes
     payable                                       7                         7
    Other long-
     term
     liabilities                               4,013                     4,070
    Deferred
     income
     taxes                                       510                       435
    Non-
     current
     liabilities
     of
     discontinued
     operations                                  908                     1,032
                                                 ---                     -----
    Total
     liabilities                             230,875                   285,869
    Commitments
     and
     contingencies
     SHAREHOLDERS'
     EQUITY:
    Preferred
     stock $.01
     par value;
     authorized
     5,000,000
     shares;
     none
     issued or
     outstanding....                               -                         -
    Common
     stock $.01      respectively,
     par value;      and
     authorized      outstanding
     50,000,000      11,275,136
     shares;         and
     issued          11,045,965
     12,398,397      shares,
     and             respectively
     12,169,226
     shares,                                     124                       121
    Additional
     paid-in
     capital                                 912,469                   911,987
    Accumulated
     deficit                                (845,010)                 (858,105)
    Treasury
     stock
     1,123,261
     shares                                   (8,532)                   (8,532)
                                              ------                    ------
    Total
     shareholders'
     equity                                   59,051                    45,471
                                              ------                    ------
    Total
     liabilities
     and
     shareholders'
     equity                                 $289,926                  $331,340
                                            ========                  ========

                     TREE.COM, INC. AND SUBSIDIARIES
                  CONSOLIDATED STATEMENTS OF CASH FLOWS
                               (Unaudited)
                                                Three Months Ended
                                                     March 31,
                                                     ---------
                                                   2012                2011
                                                   ----                ----
                                                  (In thousands)
    Cash flows from operating activities
     attributable to continuing operations:
    Net income (loss)                           $13,095            $(39,495)
    Less loss (income) from discontinued
     operations, net of tax                     (16,364)             23,408
                                                -------              ------
    Loss from continuing operations              (3,269)            (16,087)
    Adjustments to reconcile net loss from
     continuing operations to net cash used
     in operating activities attributable to
     continuing operations:
    Loss on disposal of fixed assets                 60                   -
    Amortization of intangibles                     107                 307
    Depreciation                                  1,224               1,059
    Non-cash compensation expense                 1,184               1,120
    Deferred income taxes                            76                 249
    Bad debt expense                                 (5)                  5
    Changes in current assets and
     liabilities:
    Accounts receivable                            (166)             (2,592)
    Prepaid and other current assets               (129)             (1,624)
    Accounts payable and other current
     liabilities                                 (3,721)              6,791
    Income taxes payable                            951                  (3)
    Deferred revenue                                 12                 (55)
    Other, net                                      (57)                364
                                                    ---                 ---
    Net cash used in operating activities
     attributable to continuing operations       (3,733)            (10,466)
                                                 ------             -------
    Cash flows from investing activities
     attributable to continuing operations:
    Capital expenditures                           (606)             (2,267)
    Other, net                                   (2,401)                (10)
                                                 ------                 ---
    Net cash used in investing activities
     attributable to continuing operations       (3,007)             (2,277)
                                                 ------              ------
    Cash flows from financing activities
     attributable to continuing operations:
    Issuance of common stock, net of
     withholding taxes                             (827)                 25
                                                   ----                 ---
    Net cash provided by (used in) financing
     activities attributable to continuing
     operations                                    (827)                 25
                                                   ----                 ---
    Total cash used in continuing operations     (4,567)            (12,718)
                                                 ------             -------
    Net cash provided by operating
     activities attributable to discontinued
     operations                                  70,367              40,480
    Net cash provided by (used in) investing
     activities attributable to discontinued
     operations                                   6,066              (8,910)
    Net cash used in financing activities
     attributable to discontinued operations    (55,454)            (34,151)
                                                -------             -------
    Total cash provided by (used in)
     discontinued operations                     20,979              (2,581)
                                                 ------              ------
    Net increase (decrease) in cash and cash
     equivalents                                 13,412             (15,299)
    Cash and cash equivalents at beginning
     of period                                   45,541              68,819
                                                 ------              ------
    Cash and cash equivalents at end of
     period                                     $58,953             $53,520
                                                =======             =======

                                           TREE.COM'S RECONCILIATION OF NON-GAAP MEASURES TO GAAP ($ in thousands):
                                                                                                                                                            
         Below is a reconciliation of Adjusted EBITDA to net income (loss) for both continuing operations and discontinued operations. See "Tree.com's
                           Principles of Financial Reporting" for further discussion of the Company's use of these Non-GAAP measures.
                                                                                                                                                            
                                                                                                                                                                                                                                                         Three Months Ended
                                                                                                                                                                                                                                                         ------------------
                                                                                                                                                                                                            March 31,      March 31,      December 31,
                                                                                                                                                                                                               2012           2011            2011
                                                                                                                                                                                                           ---------      ----------     ------------
                                                                                                                                                                                                                                                       (Dollars in thousands)
                                                                                                                                                               Adjusted EBITDA from continuing operations     $(2,546)       $(8,414)          $(1,425)
                                                                                                                                                               Adjustments to reconcile to net loss from
                                                                                                                                                                continuing operations:
                                                                                                                                                               Amortization of intangibles                       (107)          (307)             (104)
                                                                                                                                                               Depreciation                                    (1,224)        (1,059)           (1,346)
                                                                                                                                                               Restructuring expense                               64            (94)              (90)
                                                                                                                                                               Asset impairments                                    -              -                 -
                                                                                                                                                               Loss on disposal of assets                         (60)             -              (101)
                                                                                                                                                               Non-cash compensation                           (1,184)        (1,120)           (1,045)
                                                                                                                                                               Litigation settlements and contingencies          (222)        (4,749)             (525)
                                                                                                                                                               Other expense, net                                (121)           (80)             (102)
                                                                                                                                                               Income tax benefit (provision)                   2,131           (265)             (365)
                                                                                                                                                                                                                -----           ----              ----
                                                                                                                                                               Net loss from continuing operations            $(3,269)      $(16,088)          $(5,102)
                                                                                                                                                                                                              =======       ========           =======
                                                                                                                                                                                                                                                        
                                                                                                                                                               Adjusted EBITDA from discontinued
                                                                                                                                                                operations                                    $19,814        $(7,497)           $6,394
                                                                                                                                                               Adjustments to reconcile to net income
                                                                                                                                                                (loss) from discontinued operations:
                                                                                                                                                               Amortization of intangibles                          -              -                 -
                                                                                                                                                               Depreciation                                                     (595)                -
                                                                                                                                                               Restructuring expense                              (18)        (2,158)                6
                                                                                                                                                               Asset impairments                                    -        (12,974)                -
                                                                                                                                                               Loss on disposal of assets                           -              -               (35)
                                                                                                                                                               Non-cash compensation                             (128)          (181)              (77)
                                                                                                                                                               Litigation settlements and contingencies           (20)            (2)               (6)
                                                                                                                                                               Other expense, net                                   -              -                 -
                                                                                                                                                               Income tax benefit (provision)                  (3,284)             -                 -
                                                                                                                                                                                                               ------            ---               ---
                                                                                                                                                               Net income (loss) from discontinued
                                                                                                                                                                operations                                    $16,364       $(23,407)           $6,282
                                                                                                                                                                                                              =======       ========            ======
                                                                                                                                                                                                                                                        
                                                                                                                                                               Adjusted EBITDA from continuing operations
                                                                                                                                                                per above                                     $(2,546)       $(8,414)          $(1,425)
                                                                                                                                                               Adjusted EBITDA from discontinued
                                                                                                                                                                operations per above                                                             6,394
                                                                                                                                                                                                               19,814         (7,497)
                                                                                                                                                                                                               ------         ------
                                                                                                                                                               Total Adjusted EBITDA                           17,268        (15,911)            4,969
                                                                                                                                                               Adjustments to reconcile to net income
                                                                                                                                                                (loss):
                                                                                                                                                               Amortization of intangibles                       (107)          (307)             (104)
                                                                                                                                                               Depreciation                                    (1,224)        (1,654)           (1,346)
                                                                                                                                                               Restructuring expense                               46         (2,252)              (84)
                                                                                                                                                               Asset impairments                                    -        (12,974)                -
                                                                                                                                                               Loss on disposal of assets                         (60)             -              (136)
                                                                                                                                                               Non-cash compensation                           (1,312)        (1,301)           (1,122)
                                                                                                                                                               Litigation settlements and contingencies          (242)        (4,751)             (531)
                                                                                                                                                               Other expense, net                                (121)           (80)             (102)
                                                                                                                                                               Income tax benefit (provision)                  (1,153)          (265)             (364)
                                                                                                                                                                                                               ------           ----              ----
                                                                                                                                                               Net income (loss)                              $13,095       $(39,495)           $1,182
                                                                                                                                                                                                              =======       ========            ======


    Below is a reconciliation of revenue to adjusted Exchanges revenue, selling and marketing expense to adjusted Exchanges
     marketing expense, and Adjusted EBITDA from continuing operations (reconciled to operating loss in table above) to
     Adjusted Exchanges EBITDA.
    See "Tree.com's Principles of Financial Reporting" for further discussion of the Company's use of these Non-GAAP measures.

                                                                                                                               Qtr 1          Qtr 4          Qtr 1
    (Dollars in thousands)                                                                                                              2012           2011           2011
                                                                                                                                        ----           ----           ----

    Revenue  -Continuing
     Operations                                                                                                                      $13,235        $10,666        $13,919

    Mortgage Exchanges
     Revenue                                                                                                                           9,047          6,783         10,023
    Adjustment:
     Hypothetical  Revenue
     for leads sent to LTL                                                                                                            10,848          7,343          9,972
                                                                                                                                      ------          -----          -----
    Adjusted Mortgage
     Exchange Revenue                                                                                                                $19,895        $14,126        $19,995

    Non-Mortgage Revenue                                                                                                               4,188          3,883          3,896
                                                                                                                                       -----          -----          -----
    Total Adjusted
     Exchanges Revenue                                                                                                               $24,083        $18,009        $23,892


    Selling and Marketing
     Expense -Continuing
     Operations                                                                                                                      $10,652         $7,415        $15,529

    Exchanges Marketing                                                                                                                9,150          6,221         14,580
    Adjustment:  Shared
     Variable Marketing
     absorbed in Continuing
     Ops                                                                                                                               3,683          2,258          5,416
                                                                                                                                       -----          -----          -----
    Adjusted Exchanges
     Marketing Expense                                                                                                               $12,833         $8,479        $19,996

    Other Marketing                                                                                                                    1,502          1,194            949


    Adjusted EBITDA -
     Continuing Operations
     *                                                                                                                               $(2,546)       $(1,425)       $(8,414)

    Adjustment:  Combined
     revenue and marketing                                                                                                             7,164          5,085          4,556
    Adjustment:  Shared
     compensation costs
     absorbed in Continuing
     Ops                                                                                                                                (269)          (383)          (355)
                                                                                                                                        ----           ----           ----
    Adjusted Exchanges
     EBITDA                                                                                                                           $4,350         $3,277        $(4,213)


    *  See reconciliation
     in prior table.

TREE.COM'S PRINCIPLES OF FINANCIAL REPORTING

Tree.com reports Earnings Before Interest, Taxes, Depreciation and Amortization ("EBITDA"), and adjusted for certain items discussed below ("Adjusted EBITDA"), adjusted Exchanges mortgage revenue, total adjusted Exchanges revenue, adjusted Exchanges marketing expense, variable marketing margin $, variable marketing margin % of revenue, adjusted Exchanges EBITDA, and adjusted EBITDA % of revenue as supplemental measures to GAAP. These measures are primary metrics by which Tree.com evaluates the performance of its businesses, on which its marketing expenditures are based and in the case of Adjusted EBITDA and Variable Marketing Margin $ by which management and many employees are compensated. Tree.com believes that investors should have access to the same set of tools that it uses in analyzing its results. These non-GAAP measures should be considered in addition to results prepared in accordance with GAAP, but should not be considered a substitute for or superior to GAAP results. Tree.com provides and encourages investors to examine the reconciling adjustments between the GAAP and non-GAAP measure set forth above.

Definition of Tree.com's Non-GAAP Measures
EBITDA is defined as operating income or loss (which excludes interest expense and taxes) excluding amortization of intangibles and depreciation.

Adjusted EBITDA is defined as EBITDA excluding (1) non-cash compensation expense, (2) non-cash intangible asset impairment charges, (3) gain/loss on disposal of assets, (4) restructuring expenses, (5) litigation settlements and contingencies, (6) pro forma adjustments for significant acquisitions or dispositions, and (7) one-time items. Adjusted EBITDA has certain limitations in that it does not take into account the impact to Tree.com's statement of operations of certain expenses, including depreciation, non-cash compensation and acquisition-related accounting. Tree.com endeavors to compensate for the limitations of the non-GAAP measure presented by also providing the comparable GAAP measures with equal or greater prominence and descriptions of the reconciling items, including quantifying such items, to derive the non-GAAP measure.

Adjusted Exchanges mortgage revenue is defined as revenue from the Exchanges mortgage vertical plus modeled revenue for leads provided to LendingTree Loans assuming sale prices for such leads equaled contemporaneous sale prices of leads of similar quality sold to network lenders. Accordingly, this measure also assumes lender demand on the network would have been sufficient to absorb the additional lead volume without affecting the prices of the leads actually sold. The Company believes these are reasonable assumptions to facilitate the purpose of this metric -- to give investors a view into what the result might have been if the Company did not operate LendingTree Loans. Investors are cautioned that there is inherent uncertainty in this metric and the Company urges investors to consider this metric and the other non-GAAP measures discussed below that include this metric in addition to results prepared in accordance with GAAP and not as substitutions for or superior to GAAP results. There can be no assurance that this metric and the other non-GAAP measures discussed below that include this metric will be indicative of actual results of operations following the sale of the Home Loan Center assets.

Total adjusted Exchanges revenue is defined as adjusted Exchanges revenue plus revenue from the non-mortgage verticals.

Adjusted Exchanges marketing expense is defined as the portion of selling and marketing expense attributable to the current Exchanges business for variable costs paid for advertising, direct marketing and related expenses, plus selling and marketing expense allocated to LendingTree Loans and recorded in discontinued operations. This metric excludes overhead, fixed costs, and personnel-related expenses.

Variable marketing margin is defined as adjusted Exchanges revenue minus adjusted Exchanges marketing expense, and variable marketing margin % of revenue is defined as variable marketing margin expressed as a percentage of adjusted Exchanges revenue.

Adjusted Exchanges EBITDA is defined as Adjusted EBITDA from continuing operations, plus modeled revenue for leads provided to LendingTree Loans, minus Exchanges selling and marketing expense allocated to LendingTree Loans and recorded in discontinued operations.

Adjusted EBITDA % of revenue is defined as adjusted Exchanges EBITDA expressed as a percentage of adjusted Exchanges revenue.

Non-GAAP adjusted Exchanges metrics are not prepared in accordance with SEC rules or Generally Accepted Accounting Principles requiring certain pro forma financial information giving effect to disposition of a material asset that has occurred or in some cases that is probable, and they are not intended to be a substitute for such financial information. The Company will prepare and report pro forma financial information following the closing of the pending sale of assets of Home Loan Center in accordance with SEC rules and Generally Accepted Accounting Principles.

One-Time Items
Adjusted EBITDA is adjusted for one-time items, if applicable. Items are considered one-time in nature if they are non-recurring, infrequent or unusual, and have not occurred in the past two years or are not expected to recur in the next two years, in accordance with SEC rules. For the periods presented in this report, there are no adjustments for one-time items.

Non-Cash Expenses That Are Excluded From Tree.com's Adjusted EBITDA and Adjusted Exchanges EBITDA
Non-cash compensation expense consists principally of expense associated with the grants of restricted stock units and stock options. These expenses are not paid in cash, and Tree.com will include the related shares in its calculations of fully diluted shares outstanding. Upon vesting of restricted stock units and the exercise of certain stock options, the awards will be settled, at Tree.com's discretion, on a net basis, with Tree.com remitting the required tax withholding amount from its current funds.

Amortization and impairment of intangibles are non-cash expenses relating primarily to acquisitions. At the time of an acquisition, the intangible assets of the acquired company, such as purchase agreements, technology and customer relationships, are valued and amortized over their estimated lives.

Safe Harbor Statement Under the Private Securities Litigation Reform Act of 1995
The matters contained in the discussion above may be considered to be "forward-looking statements" within the meaning of the Securities Act of 1933 and the Securities Exchange Act of 1934, as amended by the Private Securities Litigation Reform Act of 1995. Those statements include statements regarding the intent, belief or current expectations or anticipations of Tree.com and members of our management team. Factors currently known to management that could cause actual results to differ materially from those in forward-looking statements include uncertainties surrounding the potential sale transaction related to the assets of our LendingTree Loans business, including: the uncertainty as to the timing of the closing, the possibility that various closing conditions for the transaction may not be satisfied or waived, and the effects of disruption from the transaction making it more difficult to maintain relationships with employees, customers and other business partners. Other factors currently known to management that could cause actual results to differ materially from those in forward-looking statements include the following: adverse conditions in the primary and secondary mortgage markets and in the economy, particularly interest rates; adverse conditions in the credit markets and the inability to renew or replace warehouse lines of credit; seasonality of results; potential liabilities to secondary market purchasers; changes in the Company's relationships with network lenders, credit providers and secondary market purchasers; breaches of network security or the misappropriation or misuse of personal consumer information; failure to provide competitive service; failure to maintain brand recognition; ability to attract and retain customers in a cost-effective manner; ability to develop new products and services and enhance existing ones; competition; allegations of failure to comply with existing or changing laws, rules or regulations, or to obtain and maintain required licenses; failure of network lenders or other affiliated parties to comply with regulatory requirements; failure to maintain the integrity of systems and infrastructure; liabilities as a result of privacy regulations; failure to adequately protect intellectual property rights or allegations of infringement of intellectual property rights; and changes in management. These and additional factors to be considered are set forth under "Risk Factors" in our Annual Report on Form 10-K for the period ended December 31, 2011, and in our other filings with the Securities and Exchange Commission. We undertake no obligation to update or revise forward-looking statements to reflect changed assumptions, the occurrence of unanticipated events or changes to future operating results or expectations.

About Tree.com, Inc.
Tree.com, Inc. (NASDAQ: TREE) is the parent of several brands and businesses that provide information, tools, advice, products and services for critical transactions in our customers' lives. Our family of brands includes: LendingTree.com®, GetSmart.com®, DegreeTree.com®, LendingTreeAutos.com, DoneRight.com® and ServiceTree.com. Together, these brands serve as an ally for consumers who are looking to comparison shop for loans, home services, education, auto and other services from multiple businesses and professionals who will compete for their business.

Tree.com, Inc. is the parent company of wholly owned operating subsidiaries: LendingTree, LLC and Home Loan Center, Inc.

Tree.com, Inc. is headquartered in Charlotte, N.C. and maintains operations solely in the United States. For more information, please visit www.tree.com.

SOURCE Tree.com, Inc.

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